German Leader Proposes Economic Reforms - 2003-03-14

German Chancellor Gerhard Schroeder has proposed wide ranging reforms in an effort to overcome his nation's economic crisis. Germany has Europe's biggest economy but has suffered from stagnant growth, high unemployment, and large deficits. In a speech to parliament, the German leader proposed cuts in unemployment benefits, said he would ease firing rules and also threatened to limit the power of labor unions to establish industry-wide wage contracts.

Mr. Schroeder proposes shortening the time unemployed workers are entitled to full jobless benefits and he wants to reduce welfare payments. He also proposes allowing small businesses to hire short-term workers, without the safeguards that make it hard for German companies to fire employees in an economic slowdown. Analysts say the aim is to lower the cost of German labor, which is among the most expensive in the world and contributes to high unemployment.

Mr. Schroeder told German lawmakers that reform and renewal of the social welfare state has become, as he put it, unavoidable. He said all forces in society must make their contribution, whether they are companies, workers, the self-employed or pensioners. He declared, in his words, "we will have to make a massive joint effort to achieve our goal."

The German leader also announced the government would invest nearly $17 billion in housing and infrastructure projects, mostly in the form of low-interest loans.

Last year, Germany had the worst performing economy in the 12-nation zone that uses the euro currency, with growth at only two-tenths of one percent. Meanwhile, unemployment is slightly over 11 percent, the highest since Mr. Schroeder took office in 1998.

Analysts say the German Chancellor is determined to show he is ready to go ahead with cuts in the nation's costly social safety net and to ease rigid labor market rules even though this means confronting powerful unions allied with his government.

Mr. Schroeder was narrowly re-elected last year and political observers say he is under strong pressure to make reforms that economists believe Germany has needed for years.